Merging and emerging � Kevin Schieffer talks about the CPR/DM&E marriage and PRB project
The DM&E’s president and CEO chuckled about the about-face during a phone call I received from him a few hours after the press summit. With a potential Class I parent eager to advance his Holy Grail, the decade-in-the-making Powder River Basin project, Schieffer can afford to laugh these days.
He believes the DM&E hooked up with the best possible large-road merger candidate in CPR, which won out with a $1.5 billion acquisition deal over upwards of 10 suitors — including, as widely reported, rival Canadian National Railway Co. and, as widely rumored, Union Pacific Railroad.
Long before the DM&E and CPR began discussing a merger in April, the two railroads had talked about joint marketing and operational opportunities, says Schieffer. Now and then, they also chatted about the PRB project, of which CPR knew more about than the other bidders, he says.
“We also had been desirous of buying part of their U.S. rail operations or coordinating with them,” says Schieffer.
Instead, CPR will be the buyer and the DM&E, the purchased commodity, if the Surface Transportation Board approves the merger. The board’s review process could take four to 10 months, says Schieffer, who isn’t anticipating any major oversight snags because the two railroad’s networks would create an end-to-end system.
“We believe they’ll look at this as a pro-competitive transaction,” he says.
Many DM&E customers already are pro-merger. In a press release, Farmers Cooperative General Manager Randy Rieke said the “combined and extended rail system provided by the DM&E and CPR will create new opportunities and extend market reach for many shippers.”
A key group of PRB project onlookers — basin mines and coal users, or CPR/DM&E’s potential customers — also are viewing the merger in a positive light, says Schieffer. Because of CPR’s resources and knowledge of the PRB project, the merger “adds credibility in the marketplace,” he says. And, ultimately, it’s the marketplace that will determine if the $6 billion project proceeds.
So, too, might BNSF Railway Co. and UP, which could voice merger objections to the STB at some point or work behind the scenes to keep a third competitor out of the basin.
In the meantime, CPR and the DM&E will determine what happens to the identities of the regional and its Iowa, Chicago & Eastern Railroad Corp. subsidiary after the merger. If CPR’s handling of the Soo Line, a U.S. railroad the Class I acquired in 1992, is any indication, the two regionals stand a chance to retain their namesakes — at least for a while.
Posted by: 
Jeff Stagl | Date posted: 9/7/2007
Comments
Posted by Dave Smith on 9/7/2007 8:03:28 PM
I think BNSF management blew it big time regarding the DM&E PRB project. They had a chance to actually gain from the potential new trackage — they could have helped finance part of the project in return for trackage rights over the new line from the current Orin line east to Edgemont. New coal hauling capacity for BNSF all at the minor cost of having a small regional line providing minimal competition. Instead, BNSF goes out of it's way to try and stop the project, even to the point of aligning itself with the anti-railroad Mayo Clinic. Now, it looks as though BNSF will have to deal with a formidable Class I as a third player in the basin, and they got nothing out of it. If I was a BNSF stockholder, I'd be asking BNSF management some hard questions right now!
Posted by Jenson on 9/10/2007 11:51:08 AM
It would be excellent if the site had an RSS feed so we can subscribe to your comments via a blog reader such as Bloglines or Google Reader. Glad to see the blog!
Posted by E. D. Motis on 9/10/2007 2:43:28 PM
The merger announcement was a great "shot in the arm" for CPR. In my opinion, this action was a preemtive move to stay independent and not become another part of the Union Pacific. In the long term, the stage is set to access the Powder River coal fields and set the stage for a possible merger with KCS. With the latter, the industry would truly have a NAFTA railway. Whatever occurs, it will be interesting...
Posted by Oakie G Ford on 9/10/2007 5:41:29 PM
I love "the law of unintended consequences". Having been beaten in a life and death sturggle with our small niche company that resulted in the industry leader seeing the "fit" we had created (vis a vi PRB)and within hours of closing we became an unstoppable force. The capital clout made possible the "PRB dream" and resulted in a 20% gross return. Nintheenth century greed and its government monopolism mindset is very much alive. As a life time student of transportation and its historic foundation this will be a great read for years.
Posted by Ed Feege on 9/12/2007 1:07:50 PM
I keep waiting for the other shoe to drop — government imposed carbon restrictions. The EIA says that under some cap-and-trade legislation now in the hopper, coal could fall from around 52% of US energy generation to anywhere from 11% to 35%. Under those circumstances, might even the ongoing capacity investments in the PRB become superfluous, let alone a new CP/DM&E build-in? But I guess the railroads' investments demonstrate their assessment of the political risk. Moreover, the CP/DM&E arrangement seems to hedge future coal-related developments. And of course, the EIA has a history of less-than-precise predictions.
